valuation of service tax

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kuldeep

kuldeep (Querist)
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07 March 2008 please explain Rule 5(2) of service tax valuation with example

Dayal

Dayal (Expert)
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07 March 2008 I state hereunder the exact position of Rule 5(2) that has been held by the Act with respect to reimbursements

The entire amount claimed as reimbursement towards the expenses will be subject to levy of service tax including the service charges, unless there is an agreement to establish that the expenses are incurred on account of YOU and CFA being your appointed agent for payment of expenses on our account.

If the agreement establishes that third party payments as above are made by CFA on your account then and only then the service charges will be subject to exemption from the levy of service tax

The concept of reimbursement has been done away with, in view of the new Valuation Rules, 2006 w.e.f 18/04/2006 which state that value shall be the gross amount charged for the service. Any expenditures or costs incurred by CFA in the capacity of our agent and paid by CFA will be includable in the value, unless the above criteria of Agent is fulfilled in the agreement.

To cite an example,

For instance CFA has availed Xerox / courier services, and both the service provider raise a bill on M/s. XYZ Enterprise and M/s. XYZ Enterprise pays the amount to the service providers of Xerox and courier , then this will not be considered as reimbursement, as the bills are in the name of CFA

Now for instance in the same example above, if both the service provider of Xerox and courier agency raise a bill on You and it is paid by the CFA, then the CFA has paid for the expenses as being your appointed agent.

In the second case where the bills are in the name of NPIL but paid by CFA can be claimed as reimbursement.

Similarly say octroi paid, if the octroi receipt is in your name then these can be claimed as reimbursement.

R.V.RAO

R.V.RAO (Expert)
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07 March 2008 Reimbursement OF EXPENSES PAID FIRST BY AGENT AND LATER REIMBURSED TO HIM AND WHICH ARE NOT INCLUDED IN THE BILL RAISED BY AGENT, ARE NOT INCLUDIBLE FOR SERV. TAX INCIDENCE.
R.V.RAO

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